812.5045/506½

Certain American Oil Companies to the Secretary of State66

The undersigned American companies with oil interests in Mexico respectfully make the following representations to the Honorable Secretary of State:

In May 1937 a general strike in the oil industry was declared in Mexico. For several months the oil companies had been discussing with the labor syndicates (unions) and government representatives the clauses of a proposed labor contract which would have the status of law governing the entire industry, but no agreement was reached during the period allowed for this purpose. The general strike was suspended on June 9th, after the Labor Board, upon request of the Labor Syndicates, agreed to undertake an investigation of the causes of the conflict, the condition of the industry, etc. This body appointed a commission of experts to conduct the investigation and on August 3rd this commission rendered its summary of finding and recommendations.

The report, in its Article 40a, says “Their (the companies’) financial situation should be classified as extraordinarily lucrative, and therefore, it can be affirmed that, without prejudice whatsoever to their present or future position, at least during the next few years, they are perfectly able to accede to the demands of the Syndicate of Petroleum Workers of the Mexican Republic up to an annual amount of approximately 26,000,000 pesos”.

The report then proceeds to outline the various conditions for which provision should be made in the collective labor contracts, including not only the extra financial and other benefits which the commission deems justifiable and necessary, but also plans for setting up innumerable commissions, composed of representatives of labor and capital, with governmental representative as well, with full power to carry on the operations.

The companies estimate the extra annual cost of operating under the recommendations as 42,000,000 pesos. The total annual net income of the industry at the present time is approximately 20,000,000. pesos.

It has been increasingly apparent that the objective of the Mexican [Page 668] Government is to take over the oil industry from the foreign companies. Through regulation and labor awards on the one hand and price fixing on the other, the government has followed a consistent policy calculated gradually to increase the burdens on the industry, in order to bring down the value of the properties to a point where the cost of taking them over would be minimized. The process is obviously one of confiscation by slow strangulation.

If the economic conditions set forth in the findings of the Committee in its report to the Labor Board should be imposed upon the companies it would place the companies in the position of being absolutely unable to continue to operate and they have so stated in their answer filed with the Labor Board. Further, if these demands were imposed, the law permits successive new demands by the Syndicate of Petroleum Workers at any time.

The proposed mixed commission for the petroleum industry and the many sub-commissions would give the Nationals control and would constitute an impossible administrative set-up, since it would eliminate the right of the owners to manage the enterprise. The provisions for disciplining of executives and their ultimate termination would lead to the same end, particularly in view of the fact that under the present law they could not be replaced.

The American oil companies operating in Mexico are gravely concerned over the probability that a favorable award based on the Commission’s report will be forthcoming, and cite as basis for their fears the obviously biased report of the Commission. It is believed that this decision will be a repetition of the biased findings of the Board of Conciliation and Arbitration in the case of the Mata Redonda strike of the Huasteca Petroleum Company, which findings were upheld by the Supreme Court. The record of this strike was presented in a memorial filed by the Huasteca Petroleum Company with the State Department on September 21, 1936, and reference is hereby made to the same, because the memorial furnishes proof that the decisions reached both by the Board and the Court were not merely errors of law, but were the reflection of a social bias quite outside the terms of Mexican law, and deprived the Company of its legal rights.

The problem is of the utmost concern, not only to the American oil companies directly involved, but to the United States Government as well. If the objective of the Mexican Government is successfully attained, a precedent will be established which may ultimately deprive the United States of petroleum reserves controlled by American nationals in South America and other parts of the world, in the face of limited proven domestic reserves.

This memorandum and the accompanying data are submitted to the State Department for its information with the request that it [Page 669] use its good offices to impress upon the Mexican Government its concern over the outcome of the present situation.

Respectfully,

W. W. Wilkinson

California Standard Oil Co. de Mexico
F. C. Randall

Penn-Mex Fuel Company
A. E. Watts

Mexican, Sinclair Pet. Corp.
L. L. Anderson

Huasteca Petroleum Company
J. W. Balding

Mexican Gulf Oil Co.
  1. Presented to the Department of State by Mr. Thomas R. Armstrong of the Standard Oil Company of New Jersey at the conference of August 18.